Author Topic: Index in 401 - research  (Read 2552 times)

AaronMN

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Index in 401 - research
« on: March 10, 2016, 10:35:18 AM »
Good morning!

I have two index funds available to me in my Wells Fargo 401k, which are:

  • Fidelity Spartan Ext Market Index (Inv)
    WF/BlackRock S&P 500 Index CIT N

I currently have about 35% of my Portfolio in the BlackRock.  My initial question - is one better than the other?  To allow me to do my own research in the future, what would I need to look at to make that determination myself?

Thanks all,

Aaron

dandarc

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Re: Index in 401 - research
« Reply #1 on: March 10, 2016, 10:45:00 AM »
The extended market fund is a small-to-mid cap fund, and the S&P 500 fund is pretty much the definition of large cap. 

So in the extended market fund, you're investing in smaller companies than in the S&P 500 fund.  Whether it is better or worse depends on you and what you want with your investments.  Both have low expense ratios, from what I can tell.

zephyr911

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Re: Index in 401 - research
« Reply #2 on: March 10, 2016, 11:44:39 AM »
Good morning!

I have two index funds available to me in my Wells Fargo 401k, which are:

  • Fidelity Spartan Ext Market Index (Inv)
    WF/BlackRock S&P 500 Index CIT N

I currently have about 35% of my Portfolio in the BlackRock.  My initial question - is one better than the other?  To allow me to do my own research in the future, what would I need to look at to make that determination myself?

Thanks all,

Aaron
From what I've read, small-cap ETFs have historically performed slightly better than large caps. They're also a bit more volatile. You can't really say one is objectively better or worse, but you can say the small-cap suits a higher risk tolerance and may produce better returns in exchange. If I had those two options and nothing else I'd be more in the BlackRock than the other, but still maintain a healthy percentage in both.

AaronMN

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Re: Index in 401 - research
« Reply #3 on: March 10, 2016, 01:33:38 PM »
Thank you both - I have redirect a majority into BlackRock, with new % into Fidelity.

Appreciate the help!

seattlecyclone

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Re: Index in 401 - research
« Reply #4 on: March 10, 2016, 01:41:15 PM »
"Extended Market" is essentially "Total Market minus S&P 500." If you would prefer to invest in something like VTSAX rather than slicing and dicing, buying the S&P 500 fund and Extended Market fund in an 80/20 ratio will basically get you to that point.

Felicity

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Re: Index in 401 - research
« Reply #5 on: March 10, 2016, 01:49:23 PM »
You might want to read up more about the different schools of thought around investing. The big key I see is making sure you define an asset allocation that makes sense, then deciding which funds get you there.

I'd highly recommend resources like Jim Collin's Stock Series http://jlcollinsnh.com/stock-series/ and the Bogleheads Wiki https://www.bogleheads.org/wiki/Main_Page Tons of great books out there, too, like A Random Walk Down Wall Street and The Little Book of Common Sense Investing.

For me, my allocation in US stocks follows the total stock market, which is biased more towards the large-cap/S&P 500 companies. So for me, I would have more of the Black Rock S&P 500 fund than the Fidelity Extended Market if those were my only options.

"Extended Market" is essentially "Total Market minus S&P 500." If you would prefer to invest in something like VTSAX rather than slicing and dicing, buying the S&P 500 fund and Extended Market fund in an 80/20 ratio will basically get you to that point.

Yep! That's what I would do for my plan.


Edit: Mixed up the original funds in my first post!
« Last Edit: March 11, 2016, 07:22:29 AM by Felicity »

AaronMN

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Re: Index in 401 - research
« Reply #6 on: March 10, 2016, 03:01:35 PM »
Thank you!  The below was a quote that stuck well with me from bogleheads.  I am, however, confused.  I thought the Blackrock was an S&P 500 fun?


Rick Ferri article:

Donít get me wrong, Iím a big fan of S&P 500 index funds and recommend them in a pinch. Many 401(k) plans only include just one low-cost index fund among dozens of high-cost active funds. The token fund almost always tracks the S&P 500. Iíll often go so far as to recommend the S&P 500 index fund be used as 100% of an equity allocation in a 401(k) when all the other equity funds are unreasonably high-cost actively managed products.

The 100% S&P 500 approach may appear to lack diversification, but it makes sense because the high cost to diversify in many 401(k) plans overwhelms any benefit derived from it. I do recommend to an investor using this approach to purchase international and small-cap stock index funds or ETFs outside their 401(k) to achieve overall diversification.

Felicity

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Re: Index in 401 - research
« Reply #7 on: March 11, 2016, 07:20:58 AM »
Thank you!  The below was a quote that stuck well with me from bogleheads.  I am, however, confused.  I thought the Blackrock was an S&P 500 fun?


Rick Ferri article:

Donít get me wrong, Iím a big fan of S&P 500 index funds and recommend them in a pinch. Many 401(k) plans only include just one low-cost index fund among dozens of high-cost active funds. The token fund almost always tracks the S&P 500. Iíll often go so far as to recommend the S&P 500 index fund be used as 100% of an equity allocation in a 401(k) when all the other equity funds are unreasonably high-cost actively managed products.

The 100% S&P 500 approach may appear to lack diversification, but it makes sense because the high cost to diversify in many 401(k) plans overwhelms any benefit derived from it. I do recommend to an investor using this approach to purchase international and small-cap stock index funds or ETFs outside their 401(k) to achieve overall diversification.

Oops, I misspoke in my original post, sorry! You are right, the Blackrock is the S&P 500. I think it's because I have a Fidelity Spartan S&P 500 in my 401k...editing to change now...

The quote is an interesting one. In your case, it looks like you have two relatively low cost index funds that allow you to diversify a bit without a large fee. :)

AaronMN

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Re: Index in 401 - research
« Reply #8 on: March 11, 2016, 01:02:06 PM »
Thank you for clarifying!